2024-10-23 06:20:00
Deutsche Bank returned above breakeven in the third quarter of 2024, thus erasing the gap from the second quarter. As announced on Wednesday morning, Germany’s largest credit institution achieved a net profit of 1.7 billion euros and a gross profit of 2.3 billion euros. Deutsche Bank thus exceeded experts’ expectations. Twelve analysts had previously forecast an average of 1.6 billion euros net and 2.1 billion euros gross.
Deutsche Bank is also making progress compared to the same quarter last year. At the time it earned €1.2 billion after tax and €1.7 billion before tax, which corresponded to a net return on equity after nine months in 2023 of 7%. Deutsche Bank has now reported a return on equity of 10.2% for the third quarter of 2024, moving closer to its target of more than 10% for the full year 2025. However, exclusions have been excluded from the return on equity calculation. legal costs to be borne by Postbank. With these costs the return on equity in the third quarter was 7.6%.
Deutsche Bank’s share price has risen 65% over the past year, making it stronger than that of Commerzbank, which benefits from Unicredit’s buying interest. In the first reactions before the stock markets opened, analysts were positively surprised by the economic data and expected the share price to continue rising.
The head of Deutsche Bank, Christian Sewing, also said he was satisfied on Wednesday: “In the last quarter we made important progress in putting the legal legacy behind us. At the same time, we generated a record profit for the third quarter in our operating business. This reflects our strong business model, positive development in all business areas and our continued cost discipline,” said Sewing, in office since April 2018.
As Sewing already suggests, part of the increase in profit is however not attributable to operating activity, but to a special effect: at the end of April Deutsche Bank found in court that the acquisition of Postbank, which took place more than twenty years ago, it may be more expensive than previously thought. Deutsche Bank therefore set aside 1.3 billion euros in the second quarter, which resulted in a quarterly loss. The bank therefore expanded its share buyback plan. Sewing said the quarterly results “not only strengthen us on our path to profitable growth, but also in our confidence that we will exceed our original targets for capital distribution to our shareholders. We have now requested approval for further share buybacks.”
Deutsche Bank was now able to release part of the high provisions for the Postbank proceedings in favor of earnings in the third quarter because it reached agreements with current complaining Postbank shareholders such as the publisher Effecten-Spiegel and the hedge fund Elliott were not disadvantageous for the bank. The Higher Regional Court in Cologne has now set the hearing date in the proceedings with another Postbank plaintiff for this Wednesday. According to information from FAZ, the ruling of the Cologne Higher Regional Court will have no effect on the transactions, because the debtor’s mandates do not apply.
Despite the economic tensions, the growing corporate insolvencies and the consequent risk of insolvency on loans, further provisions for risks remained modest at 494 million euros. Deutsche Bank had to set aside 34% less for commercial real estate than in the same quarter last year, when it faced a spike in price declines, especially in the US market.
Quarterly data in detail
But this is not the only reason why it is worth taking a deeper look at the quarterly balance sheet: investment banking contributed significantly more to Deutsche Bank’s gross profit of 2.3 (prior year quarter: 1.7) billion euros in the third quarter of 2024, to 945 (prior-year quarter: 667) million euros compared to what analysts had previously expected at 677 million euros. Investment banking is once again the most profitable sector, followed by the somewhat weak business with corporate clients with 665 million euros, which a year ago even temporarily replaced investment banking as the best division with a contribution to profit of 805 million thanks to the strong interest margin. The private client sector increased its profit contribution more than expected to 524 (337) million. The fund business (DWS) also showed a clear improvement in the last quarter with a profit contribution of 220 (109) million euros, but for Deutsche Bank, bond and currency trading (FIC) is particularly important. This part of investment banking provides more than a quarter of the group’s revenue of 7.5 billion euros. Deutsche Bank reiterated on Wednesday its goal of generating more than 30 billion euros this year.
CFO James von Moltke previously announced that Deutsche Bank would increase FIC revenue by a single-digit percentage this year. In the third quarter, FIC’s revenues grew 11% compared to the same quarter last year, stronger than in the second quarter, when the bank managed 3% more than the same quarter last year. Deutsche Bank apparently took market share away from, among others, Goldman Sachs in the FIC sector. This US bank, heavily anchored in the equity business, lost 12% of its FIC revenue in the third quarter of 2024 compared to the previous year quarter.
Another bright spot at Deutsche Bank is increasingly the private client division, led by Claudio de Sanctis on the board of directors from July 2023. Karl von Rohr’s successor managed, overshadowed by many troubles and numerous IT failures at the Postbank, to limit cost increases to 2% annually. It is expected that in 2025 the cost-income ratio, currently at 77%, will decline so much that Deutsche Bank, with its 19 million private customers, will have to spend just 65 cents to generate one euro of income. In addition to measures taken such as staff reductions and branch closures, which will only have a cost-reducing effect in the medium term, greater efficiency in trading with private customers will have to be achieved by reducing the product assortment , further optimization of processes and reduction of paper mailings. Deutsche Bank currently sends 100 million paper letters a year to private customers.
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